Denny’s Corporation (DENN), America’s largest full-service family restaurant chain, reported third-quarter 2010 earnings of 10 cents per share surpassing the Zacks Consensus Estimate of 8 cents and were in line with the prior-year quarter.
Total revenue declined 4.2% year over year to $139.9 million, but outperformed the Zacks Consensus Estimate of $135.0 million. Sales at company-operated restaurants plunged 8.1% from the year-earlier quarter to $107.2 million mainly due to the sale of some company-owned restaurants to franchisees under the Franchise Growth Initiative (FGI) program.
Franchise and license revenue spiked 11.1% to $32.8 million due to a rise in revenues from franchise fees, royalties and franchise occupancy by a respective $2.1 million, $0.9 million and $0.3 million.
Same-store sales fell 0.7% at company-operated units and 1.2% at franchised units. Same-store guest counts rose 2.3%, indicating Denny’s strongest guest count performance since the first quarter of 2005. The traffic turned positive in July at 1.8% and is improving sequentially thereafter. The improvement in guest count can be attributed to the company’s value menu, which was well accepted by consumers.
Company-operated restaurants’ operating margin dropped 140 basis points (bps) to 14.9%, while franchise operating margin fell even deeper by 170 bps to 63.3%. Margins were hurt by higher costs.
During the quarter, Denny’s franchisees opened 55 new restaurants, closed 5 restaurants and purchased 2 company units. The company also opened six company owned restaurants and closed 2 restaurants. At the end of the quarter, there were 228 company-owned and 1,380 franchised and licensed restaurants.
Denny’s ended the third quarter with cash and cash equivalents of $40.6 million and shareholders’ deficit of $102.4 million.
For fiscal 2010, Denny’s reaffirmed its company-operated same-store sales outlook in the range of negative 4% to negative 2% and franchise same-store sales in the range of negative 5% to negative 3%.
Denny’s plans to open 24 new company units compared with the previous guidance of 11 units while new franchise units are expected to rise to 102 from the earlier projection of 100.
Though the economy is showing signs of improvement, Denny’s is still viewing negative same-store sales for fiscal 2010, thus we expect estimates to decrease in the coming days.